Hastings Science and Technology Law Journal · University of California, Hastings College of the Law

Taxation by Condition: Spectrum Repurposeing at the FCC and the Prolonging of Spectrum Exhaust

by T. RANDOLPH BEARD, PH.D., GEORGE S. FORD, PH.D., LAWRENCE J. SPIWAK, ESQ., AND MICHAEL STERN, PH.D. – In this article, we show how the Federal Communications Commission’s regulatory process may be used by special interests (and the Agency) to impede the efficient functioning of a secondary market for commercial spectrum. In particular, we show that imposing (and threatening to impose) significant conditions when firms seek to repurpose spectrum from a low-value to a higher-value use acts as a “tax” and thus reduces the incentives of firms to exchange spectrum in the secondary market. As a result, “taxation by condition” will discourage the larger scale transactions necessary to resolve the acknowledged spectrum shortages in the commercial mobile wireless industry, though we may still observe many deals of a less material nature that will attract less attention and thus fewer conditions. Our analysis also reveals that in many cases the arguments to condition spectrum licenses based on “market power” concerns are misguided. Market power does not over-motivate licensees to repurpose spectrum. In fact, economic theory shows that a monopolist will repurpose spectrum to a degree less than or equal to a benevolent “social planner.” Accordingly, under the threat of a spectrum shortage, “taxing” efforts to repurpose spectrum is perhaps the worst of all policies.